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Julianne Geiger

Julianne Geiger

Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.

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Oil Prices Rise As Saudi Oil Exports Plummet

Saudi Arabia’s oil exports plummeted in the last month of 2018, reassuring oil markets that OPEC’s de facto leader may have enough fortitude to carry the water of the cartel in lowering global oil inventories.

The Kingdom’s oil exports in December fell by 500,000 barrels per day in December, according to tanker tracker data compiled by Bloomberg, with most of the decrease coming off China and the United States, the latter which has the most-watched oil inventories in the world. The United Arab Emirates also showed fewer oil exports in December.

Data from S&P Global Platts’ cFlow software estimated that Saudi’s oil exports fell to 7.523 million bpd in December, down from 8.162 million barrels per day in November.

Oil prices plunged in the last month of the year as the market viewed with skepticism OPEC’s agreement with non-OPEC allies to reduce oil production by 1.2 million barrels per day, with OPEC responsible for 800,000 bpd of that 1.2 million.

UAE’s oil minister Suhail al-Mazrouei reassured oil markets on Wednesday that OPEC’s production cuts should balance the market sometime in Q1 2019, and indicated that OPEC may even cut deeper if the market should fail to respond.

The markets were indeed responding favorably by mid-afternoon, with oil prices rallying on the news of OPEC’s reduced oil exports. WTI climbed almost 3% in afternoon trading to reach $46.74 barrel, while Brent increased 2.6% to trade at $55.20 per barrel.

Oil prices have been unable to rally for any extended period of time in the last few months of 2018, with U.S. oil production and corresponding inventories posing a worthy challenger for its OPEC adversary. Oil production rose to 11.7 million bpd according to the Energy Information Administration (EIA) as of 12/21/2018—the last week for which there is data.

By Julianne Geiger for Oilprice.com

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  • Subhadra on January 02 2019 said:
    I really do not agree to the above as there are no confirmed oil statistics from Saudi Arabia. These are all speculations to increase the oil price. Just follow the demand and supply economics to find the reality rather than oil tanker data.
  • James Brown on January 03 2019 said:
    A trick is going to follow now after the production cuts. Saudis are doing everything to sell Aramco at highest possible price through IPO. Someone has to save Khilafah and a wet dream of religious utopia, a dream 1500 years old that never ceases in minds of hundreds of generations of religious "believers". But is it so easy? Whoever was working for Aramco knows that the Saudis are totaly incompetent and that for every job they have one expat or nowadays more often a contractor doing the job, and one Saudi "monument" standing next to him and watching him doing the job. Assets are old and poorly maintained, with just a cosmetic improvement. These are two huge flaws they will try to sell to the World. Disaster. This company is not worth even a quarter of the price they are asking. Do not buy any Aramco share, it is a trick to get money. Arabic tricks!!!
  • Mamdouh G Salameh on January 03 2019 said:
    By cutting an estimated 639,000 barrels of oil a day (b/d) from its exports in December 2018, Saudi Arabia was signalling to the global oil market its determination and that of OPEC+ to defend the oil prices and that the recently-agreed cuts of 1.2 million barrels a day (mbd) from January 2019 onwards are going to do the trick and reduce the glut in the market.

    2019 will see a resurgence in oil prices beyond $80 a barrel underpinned by global oil fundamentals that are still virtually as robust as in 2018 with the global economy projected to grow at 3.8% in 2019 compared with 3.9% in 2018, the global oil demand also projected to add 1.4 mbd in 2019 over 2018 and with China’s demand for oil continuing unabated.

    My projection is underpinned by the following market conditions. The first is that Saudi Arabia needs an oil price higher than $80 to balance its budget. This means that it will be prepared to cut its production drastically in support of oil prices.

    The second market condition is that the trade war between the US and China could be coming to an end since it has now dawned on President Trump that he can’t win a trade war with China. Moreover, it has been hurting the US economy far more than China’s.

    A third condition is that Saudi Arabia and Russia who between them account for 27% of global oil production and also 27% of global oil exports according to the 2018 OPEC Annual Statistical Bulletin are determined to bolster oil prices. Moreover, Russia has vested interests in cooperating with OPEC+ as its budget has earned an additional US$120 bn in the last two years as a result of that cooperation.

    However, a bearish element may still be at play in 2019, namely the failure of US sanctions to cost Iran the loss of even one barrel from its oil exports leading the global oil market to realize that there will not be a supply deficit in the market despite projections by a majority of analysts and investor bankers that Iran will lose between 500,000 b/d and 1.5 mbd.

    Moreover, US sanction waivers which were issued to eight countries in November last year will most probably be renewed in May this year if only to be used by the Trump administration as a fig leaf to mask the fact that their zero oil exports option is out of reach and that the sanctions are deemed to fail.

    The impact of US shale oil on the global oil market has little to do with claims about rising shale oil production and a lot more to do with US manipulation of oil prices.

    Claims about explosive growth of US shale production are pure hype reminiscent of the hype by the US Energy Information Administration (EIA) and the International Energy Agency (IEA). The EIA’s claim that US oil production reached 11.7 mbd is overstated by at least 3 mbd made up of 2 mbd of liquid gases and 1 mbd of ethanol all of which don’t qualify as crude oil. In fact International Exchanges around the world don’t consider them as substitutes for crude oil. And if the International Exchanges don’t accept them as substitutes, then they are not crude. Therefore, US oil production could have been no more than 8.7 mbd in 2018.

    Whatever say the US may have in the global oil market emanates from its manipulation of oil prices through the EIA’s falsifying claims about rising US oil production and significant build-up in US crude and products inventories and also hiking the value of the US dollar.

    To mitigate the impact of such malpractice, OPEC members should seriously consider reducing if not cutting altogether all their oil exports to the US estimated at 3.2 mbd which have been augmenting US crude oil inventories. They could also adopt the petro-yuan in preference to the petrodollar since 80% of their oil exports go to the Asia-Pacific region particularly China. It is possible that Russia may be able to persuade Saudi Arabia to drop the petrodollar and adopt the petro-yuan instead.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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